I've written about Brazil pre-Lula and post-Lula and spent the last five years covering all aspects of the country for Dow Jones, Wall Street Journal and Barron's. Meanwhile, for an undetermined amount of time, and with a little help from my friends, I will be parachuting primarily into Brazil, Russia, India and China. But will also be on the look out for interesting business stories and investing ideas throughout the emerging markets.

In Upcoming Election, Brazilians Desperate For Change

You might say it started with a mere five cent bus fare hike back in the Brazilian winter of 2013. Then, thousands of Brazilians took to the streets of São Paulo to protest the higher cost in transportation. At first, the increase seemed like a drop in the bucket for a country with nearly full employment and rising incomes. But a deeper look revealed a society fed up with paying for lackluster services. Taxes go up. School prices go up. Everything goes up, but according to the average Brazilian on the street, quality goes down. Brazilians are paying a lot for a little. And now they want change. They will have a chance to get it on Oct. 5, when Workers’ Party incumbent President Dilma Rousseff faces her two main challengers.

This strong desire for change has been here before.

Back in Oct. 2002, Brazilians were clamoring for something new. Tired of interest rates in the 20s, the International Monetary Fund and the old Washington Consensus, they elected Workers’ Party poster boy Luiz Inacio Lula da Silva. It was his third shot at the presidency. He won in a landslide.

Protesters in Brazil asking for government accountability. The country is notorious for high taxes and fees, but without the quality public services to go along with it.

In his tenure, he kicked the IMFIMF to the curb, saw the Washington Consensus on Latin America economics crumble, got investment grade status, state energy company Petrobras discovered oil and Brazil became China’s key supplier of raw materials, making Brazil richer than it ever was in its history. The middle class became the majority. The poor had jobs. Thanks to all that, Brazilians mostly overlooked the ongoing corruption scandals that plagued Lula’s closest political allies.

But after 12 years of Workers’ Party rule, the Lula effect may no longer work on Dilma, who was elected easily thanks to popular support for Lula.

According to polling firms Datafolha, Ibope and Sensus, she is barely ahead of her main rival, Social Democrat Aecio Neves, a playboy-type Senator from Minas Gerais. No one is really excited about him. But from a market perspective, something is going to change, even if Dilma wins as polls still suggest. In Brazil, something’s got to give.

Lula and Dilma. Brazil’s most popular president in modern times might lend Dilma a hand in her re-election bid. But Brazil’s desire for something different might be stronger than Lula’s highly successful 8 years as president. (Photo credit: Wikipedia)

According to the latest Ibope poll (July 18-21), 70% of respondents want the next president to adopt a different course of action. That’s up from 65% in May. The good news for Dilma is that none of the opposition candidates have stepped up claiming to be the solution to Brazil’s socio-economic problems. The only change they have announced is the fact that they are not PT, the two letter acronym that stands for the Workers’ Party in Portuguese.

Current trends indicate Dilma is losing ground at the same time her government’s disapproval rating is creeping up. If an opposition candidate emerges as a true agent of change, Dilma could slip quickly in the polls.

The overall success of the recent World Cup in Brazil, along with the disappointing finish of the Brazilian team (lost a third place match against the Netherlands) have not had any material impact on Dilma. She was booed twice during her appearances at World Cup games. Brazil’s attitude toward her has not improved since. It’s been in decline for over a year now.

An anti-FIFA protester in 2014. Brazilians questioned the government’s spending on new stadiums after it said it would not spend public money to build out for the World Cup. Anti-government protests quickly turned on FIFA, but their call for like-minded individuals to boycott the games fell on deaf ears.

In Brazil, presidents live or die by the country’s economic performance. A weaker than expected economy is hurting Dilma. The blame for economic uncertainty rests on her shoulders. This is good news for the Social Democrats, but pointing out the Dilma administrations shortfalls is not the same as showcasing your strengths to lead.

Both consumer and business confidence indicators are at record lows. The labor market remains tight with low unemployment, but hiring has slowed. Net job creation is declining to 2008-09 crisis levels, and the labor force participation rate is shrinking. Analysts have been forecasting a rise in unemployment for at least a year now. They’ve been wrong each time. They might be right in the months ahead, however.

As the incumbent, Dilma will get most of the media exposure, followed by Neves and then Eduardo Campos and his popular vice presidential pick, the feisty Marina Silva, a former PT senator. Dilma has the largest share of the government-financed radio and TV campaign programs that start on August 19. TV time is an advantage thanks to free political advertising. As the campaign goes into full swing, Dilma’s fight for re-election will be won in the media. No one is expecting a turn around in the economy between now and election day.

In 2002, Social Democrat candidate Jose Serra had nearly twice the TV time of Lula, notes Barclays Capital economist Marcelo Salomon in New York. Serra was running for the presidency following 8 years of Social Democratic president Fernando Henrique Cardoso. But, Salomon notes, “That advantage was not enough to win the presidency. The urge for change was the largest driver.”

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